mardi 5 novembre 2013

The Three Reasons Twitter Didn’t Sell To Facebook

Facebook’s
Mark Zuckerberg tried to acquire Twitter not once but twice, through
official channels and via co-founder Jack Dorsey. The details of the
efforts are revealed in Nick Bilton’s new book Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal.
I’ll have a full review of the book soon, but I found one passage in
particular worth noting. It was late October of 2008, shortly after
Dorsey had been ousted as CEO and consigned to a silent role as Chairman,
with no voting stock or operational control. Fellow Twitter co-founders
Ev Williams and Biz Stone had been invited to visit Facebook for a
sit-down with CEO Mark Zuckerberg. The purpose? An acquisition of
Twitter.

Zuckerberg, Bilton explains, had been working Dorsey for months to
try to arrange a buyout. But his plans were thrown into disarray when
Dorsey was yanked from the CEO slot. An email at one point to Jack had
given a point-by-point reasoning on why Facebook+Twitter made sense.
Among those reasons was the customary threat that Facebook could choose
to ‘build products that moved further in [Twitter's] direction’, a
tactic that we’ve personally heard many accounts of Zuckerberg
employing. The implicit threat: sell to us or we’ll clone your product.

During the meeting, Williams and Stone threw out a valuation: $500
million. Zuckerberg was not shocked, as Dorsey had already informed him
that this was the range that would be sought.
But the sale didn’t happen, and the reasoning behind the rejection
was outlined in an email by Williams to the board, which is partially
quoted in Bilton’s book.

It seems to me, there are three reasons to sell a
company, Ev wrote in an e-mail to the board outlining why they should
decline Facebook’s offer. 1. The price is good enough of or a value that
the company will be in the future. (“We’ve often said that Twitter is a billion dollar company. I think it’s many, many times that,” Ev wrote.) 2. There’s an imminent and very real threat from a competitor. (Nothing is going to “pose a credible threat of taking Twitter to zero.” 3. You have a choice to go and work for someone great. (“I don’t use [Facebook]. And I have many concerns about their people and how they do business.”)

There are a few interesting points in this passage, which we’ve
emphasized. First among those is that the board saw Twitter as a
billion-dollar company in 2008, and Williams saw it as many times that.
In 2008, Twitter had fewer than 11 million users, and had yet to see the
exponential gains that would come in early 2009 as a result of
publicity like Ashton Kutcher’s public race against CNN to be the first
million-follower account. Twitter’s current IPO filing places a roughly
$11.9 billion value on the company. Even with a crappy infrastructure
still wobbling under the weight of the users it did have, Twitter’s
leadership had faith.

That faith extended to the fact that there was no competitor,
including Facebook, who could pose a ‘credible threat of taking Twitter
to zero’. The concept of Twitter, and its execution, was so unique that
even a company with Facebook’s resources was ill-equipped to mimic its
behavior and success. This is reinforced by another anecdote in the book
about a possible $12 million Yahoo acquisition, which was politely
declined very early on in Twitter’s life. The number, even with only
250k active users of what was still an Odeo side project, seemed so low
to Biz, Williams and Dorsey that it became a running joke.

And lastly, Williams was also uncomfortable about a culture
mis-match. The book as a whole drills down deeply into some very flawed,
very human characters. But a strain that runs throughout is that the
core creators of Twitter were all looking for ways to democratize human
connections. That started with Odeo and continued through to the Twitter
experiment. Williams felt that Twitter could be negatively impacted by
intermingling with Facebook’s company culture, and was willing to bet
hundreds of millions of dollars that it would be better without that
influence.

We seem to talk more and more about the mercenary nature of Silicon
Valley — and the popularity of ‘acquisition as business plan’ — daily.
But, it turns out, there are still people making decisions based on
something other than the seven deadly sins.

And one can’t discount the impact that lightly veiled threats have on
negotiations. They can often lead to a sour taste, and we’ve heard
about more than one negotiation with Facebook that has been spoiled by
this kind of hint-dropping. Facebook took roughly three years to clone
Twitter’s core ‘follow’ feature, launching Subscribe in 2011. It was
later re-named ‘Follow’.

Dorsey, for his part, was ambivalent about a Facebook acquisition,
saying that “If the numbers are right, there’s a success story in either
path.” At the time, he was fresh off of his removal as CEO, with little
hope of getting any real power in the company back. That turned out to
be wrong, thanks to friendly investor Peter Fenton, but it’s not too
surprising that he saw the money as a fair trade.
But the board agreed with Williams’ reasoning and declined the offer.
Zuckerberg would then go on to court Dorsey heavily, but refuse to give
him a head of product position. Dorsey never went to Facebook, and when
Twitter IPOs, he’ll get his voting shares back.
An interesting note: Williams actually blogged about the offer, and the three reasons, earlier this year but never disclosed that it was Facebook. An interesting quote from the piece:

At the time, the offer we had on the table for
Twitter—though a heck of a lot of money and a huge win for investors and
anyone else involved—didn’t seem like it captured the upside. Even
though we weren’t huge, and there were still a lot of doubters, I
believed our potential was unbounded.
…
In the Twitter case, we had no desire to sell. I had actually just
become CEO and was raring to go—as was the team. Additionally, the
company we were having the discussion with didn’t seem like one in which
we’d fit particularly well or the team would be stoked about.

The passage presents us with an intriguing alternate reality where
Facebook acquired Twitter, establishing an essential monopoly on the
world’s largest and most recognizable social networks. And an example of
how it’s still possible to mesh the concepts of business acumen and
moral code.[Photo: (CC) Flickr/Randy Stewart, blog.stewtopia.com]